How to setup your position size in crypto trading

Position sizing is a crucial aspect of trading in any market, including the crypto market. It refers to the number of units of a particular asset that a trader buys or sells in a trade. In crypto trading, position size is important for several reasons.

First and foremost, position sizing is a key component of risk management. By determining the appropriate position size for a trade, traders can limit their potential losses if the trade goes against them. This is especially important in the volatile crypto market where prices can fluctuate rapidly. A trader who doesn’t carefully consider position sizing could find themselves exposed to significant losses if the market moves against them.

Furthermore, position sizing helps traders preserve their capital. By limiting the amount of capital they put at risk in any single trade, traders can protect themselves from significant losses that could otherwise wipe out their trading accounts. In other words, proper position sizing helps traders avoid putting all of their eggs in one basket.

On the other hand, position sizing can also affect a trader’s potential profits. If a trader takes a position that is too small, they may miss out on potential gains. However, if a trader takes a position that is too large, they may expose themselves to more risk than they can handle. Finding the right balance is key.

In addition to managing risk and potential profits, position sizing can also impact a trader’s psychology. Taking a position that is too large can lead to anxiety and stress, which can impair a trader’s ability to make rational decisions. Conversely, taking a position that is too small can make it difficult for a trader to stay engaged with the market and feel like they are making progress.

Overall, position sizing is an essential component of successful trading in the crypto market. Traders must carefully consider their risk tolerance, trading strategy, and market conditions when determining the appropriate position size for their trades. It’s important to strike a balance between limiting risk and maximizing profit potential, while also managing the psychological impact of position sizing. By doing so, traders can help ensure that they are set up for long-term success in the crypto market.

How to calculate your crypto position size

You can use my position sizing calculator to easily respect your own risk. It also calculate leverage.

The formulas to calculate your position sizes require 4 elements:

1. Account Size — This is the total USDT, Bitcoin, Ethereum or any other crypto that you use for your trading.
   Include any open trade and update your account size once your trade is exited.
   Example: You have 1000 USDT, you open a trade with a position size of 100 USDT. For your next trade, you will still use the 1000 USDT to calculate your Position Size. Once your trade is closed whether, in profit or loss, you will then update your Account Size by adding the profit or loss of that close trade.
2. Entry Price — This is the Limit price at which your trading strategy tells you to go Long or Short.
   If you are entering your trade using a Market order, use an approximation of your entry price. Make it the worst entry price, like there will be slippage. By doing this, you will protect yourself from a real surprise if the market is highly volatile.
3. Stoploss Price — This is the price of your first stop-loss that would get hit if the position goes against you. If you don’t know where your stop-loss should be, learn how to determine your crypto stop-loss or our Automated crypto signals. Opening a trade without knowing your stop-loss is a terrible idea and will only get you rekt sooner or later.
4. Maximum Risk % — This is the maximum risk in percentage that you are willing to take for each trade. This is really up to you, but I would suggest that you start with a risk % between 0.5% and 1.5%.
   Even if that seems pretty small, unless you know exactly the best risk per trade because you have backtested and forward tested your strategy, 0.5%-1.5% will keep your equity safe from the high volatility of the crypto market.

Using these 4 elements, we will be able to get our position size in Amount (USDT, BTC, ETH), in percent (% of our account size), and in Units (ADA, XRP, TRX, LINK).

Below are all the formulas that you will need in order to calculate it. Or you could simply use our Position Size calculator 😉

Position Amount Size Formula

This is the formula to calculate how much of the base currency you invest in your trade. Base currency example: TRX/BTC, BTC is the base currency, BTC/USDT, USDT would be the base currency.

Position Size Formula for a LONG position

(Account Size *  (Max Risk % X 0.01)) / (Entry Price - Stoploss Price) X Entry Price

Lets see an example of a LONG position for BTC/USDT.

Account Size: 1000 USDT
Entry Price: 30,000 USDT
Stoploss Price: 28,000 USDT
Max Risk %: 1.5%

(1000 X (1.5 X 0.01)) / (30,000–28,000) X 30,000 = 225 USDT

Lets take it apart:

(Account Size * (Max Risk % X 0.01))
(1000 X (1.5 X 0.01)) = 15 USDT — This is the maximum amount that we are willing to risk on that trade.

(Entry Price — Stoploss Price)
(30,000–28,000) = 2000 USDT — This is the amount we would lose if our stop loss was hit and we had bought a full BTC.

(Account Size * (Max Risk % X 0.01)) / (Entry Price — Stoploss Price)
15 / 2000 = 0.0075 — This is the amount of BTC that you should buy in order to only lose 15 USDT (1.5% of your Account Size) if your trade hits the stop loss.

(Account Size * (Max Risk % X 0.01)) / (Entry Price — Stoploss Price) X Entry Price
0.0075 X 30,000 = 225 USDT By multiplying the amount of BTC you should buy by the Entry price, you will get the Position Size amount for your Base currency.

Position Size Formula for a SHORT position

This is very similar to the LONG position calculation but we will Reverse the Entry Price and Stoploss price in the formula, it goes like this:

(Account Size *  (Max Risk % X 0.01)) / (Stoploss Price - Entry Price) X Entry Price

Let’s see an example of a Short position for BTC/USDT.

Account Size: 1000 USDT
Entry Price: 30,000 USDT
Stoploss Price: 31,000 USDT
Max Risk %: 1%

(1000 X (1 X 0.01)) / (31,000–30,000) X 31,000 = 300 USDT

Lets take it apart:

(Account Size * (Max Risk % X 0.01))
(1000 X (1 X 0.01)) = 10 USDT — This is the maximum amount that we are willing to risk on that trade.

(Entry Price — Stoploss Price)
(31,000–30,000) = 1000 USDT — This is the amount we would lose if our stop loss was hit and we had bought a full BTC.

(Account Size * (Max Risk % X 0.01)) / (Stoploss Price — Entry Price)
10 / 1000 = 0.01 — This is the amount of BTC that you should buy in order to only lose 15 USDT (1.5% of your Account Size) if your trade hits the stop loss.

(Account Size * (Max Risk % X 0.01)) / (Stoploss Price — Entry Price) X Entry Price
0.01 X 30,000 = 300 USDT By multiplying the amount of BTC you should buy by the Entry price, you will get the Position Size amount for your Base currency.

Position Size Percentage Formula

To get the Position Size in percentage, we will use the previous formulas but we will divide the results of those by our Account Size and then multiply the result by 100. like this for a LONG:

(((Account Size *  (Max Risk % X 0.01)) / (Entry Price - Stoploss Price) X Entry Price) / Account Size) X 100

So if the total of ((Account Size * (Max Risk % X 0.01)) / (Stoploss Price — Entry Price) X Entry Price) = 300 USDT and our account size is 1000 USDT (300 / 1000 = 0.3) X 100 = 30. We would invest 30% of our Account Size in that trade.

The formula for Position size percentage for SHORT:

(((Account Size *  (Max Risk % X 0.01)) / (Stoploss Price - Entry Price) X Entry Price) / Account Size) X 100

Position Size Lot (Units) Formula

This formula will tell us how much of the quote currency we should buy in order to respect our maximum risk %. Quote currency example: BTC/USDT, BTC would be the quote currency, ETH/BTC, ETH would be the quote currency.

This one is easier as we already saw it in the first formula paragraph. We will use the same formula that we used for Position Amount Size, but we will remove the last multiplication. So it would go like this:

Long Lot (Units) formula:

(Account Size *  (Max Risk % X 0.01)) / (Entry Price - Stoploss Price)

Short Lot (Units) formula:

(Account Size *  (Max Risk % X 0.01)) / (Stoploss Price - Entry Price)